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Why this ASX cannabis stock has climbed 2% higher this morning

The THC Global Group Ltd (ASX: THC) share price has climbed 2% higher in early trade after a key strategic update on its Canada-based hydroponics equipment division.

What was in this morning’s announcement?

THC updated the market on Crystal Mountain, which has been in the process of securing distribution agreements both within Canada, Europe and the UK.

The company expects to see stronger sales in these expansion markets as these distribution agreements are settled and products come on sale in the region.

Crystal Mountain has also expanded its product range through distributing new products imported from partners across Canada, and soon internationally.

THC is also exploring new sales channels including online cannabis-focused offerings targeted to the micro-cultivator market, which is rapidly increasing in Canada.

Crystal Mountain’s unaudited revenue for the March 2019 quarter was A$991,000 ($3.964 million annualised) which was an increase of 22% quarter-on-quarter.

THC management said this increase has been partly driven through stronger sales in the company’s lighting and lighting equipment product ranges.

How has the THC share price performed post-IPO?

The THC share price is currently trading at $0.54 per share with a mean daily return of -0.11% and a standard deviation of 3.31% by my calculations.

I’m wary of investing in early-stage growth stocks with minimal earnings and for mine THC falls into this basket, but I’m more dividend-inclined given potential headwinds for global economic growth we’ve seen in recent months.

However, IPO investors have thus far enjoyed a healthy 45.9% since May 2017 but the share price remains a long way shy of its $1.00 per share high it reached in early January 2018.

I personally wouldn’t be looking to buy THC shares until I’ve seen some more solid earnings growth and I think some Aussie tech options such as Afterpay Touch Group Ltd (ASX: APT) or Appen Ltd (ASX: APX) could be a better buy at this point in the cycle.

For those who are still bullish on the growing cannabis industry, this buy-rated stock could provide an alternative to THC in another high-risk, high-reward play in the agriculture sector.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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